Cannabis Stocks Are Legally Fooling You — Here’s How

One year ago, it looked as if the cannabis industry would not be stopped. Canada had just become the first industrialized country in the modern era to legalize recreational marijuana, derivative products were expected to be launched by no later than October 2019, and a number of states in the U.S. were newly legalizing marijuana in some capacity.

And yet, the wheels fell off the wagon. Regulatory and procedural problems in Canada have…

combined to keep legal product from reaching dispensaries. Health Canada has been overwhelmed with cultivation and sales license applications, while certain provinces (ahem, Ontario) have been slow to license physical dispensaries. Meanwhile, high tax rates in U.S. markets have encouraged consumers to stick with considerably cheaper black-market growers.

The end result has been a sea of losses throughout much of the marijuana industry, with Canadian pot stocks being especially susceptible to early-stage red ink.

However, a few growers to our north have managed to buck this trend and generate quarterly profits. Unfortunately, as you’ll see, these profits are nothing more than fool’s gold.

Canadian pot stocks are (legally) fooling you

It’s easy for investors to read a headline number (such as sales, or earnings per share) and take it as fact. But Canadian cannabis stocks are a different breed of company that require more sleuthing from investors to uncover the facts. That’s because publicly traded Canadian cannabis companies report their operating results using International Financial Reporting Standards (IFRS), which has a few marked differences from the generally accepted accounting principles (GAAP) that we’re used to in the United States.